College Funding In Context: Understanding The Difference In Higher Education Appropriations Across The States

College Funding In Context: Understanding The Difference In Higher Education Appropriations Across The States

December 20, 2012

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David Weerts,

Thomas Sanford,

Leah Reinert

Access to a post-secondary education is a vital aspect of the American dream, allowing for equality of opportunity and a stable pathway to the middle class for all who are willing to work for it regardless of their background or socioeconomic status. Higher education not only improves the prospects for the employment and earnings of individuals, but has benefits that feed back into communities and society as a whole, including increases in civic participation and productivity, and preparedness for success in the global economy. Our shared commitment to these values is reflected in the growing numbers of Americans who are turning to higher education as a means to enhance their lives and in the increasing diversity of enrollment at colleges and universities across the country. But even as the need for some post-secondary training has become more important to our shared prosperity, states have reduced their investment in higher education.

State appropriations have historically been the most important source of funding for higher education, but over the past two decades that support has waned. Between 1990 and 2010, real appropriations per full time equivalent student (FTE) declined by 26.1 percent, putting funding today at its lowest level since 1990.1 As real state spending per full time student decreased, institutions made up the difference by raising the price of attendance, shifting costs that were once a social investment onto students and their families instead. Over the same 20 year period, tuition costs have increased by 112 percent at 4-year public universities and by 71 percent at 2-year colleges.2 In many cases states attempted to mitigate the burgeoning cost of attendance by expanding financial aid programs, but the increasing reliance on merit-based aid means that assistance often fails to reach those low-income households who need it most. As tuition costs grew by 112 percent between 1990 and 2010, the median household income stagnated, growing by just 2.1 percent.3 With rising tuition and stagnating incomes, students and their families are taking on record levels of debt in order to pay for the opportunity to attend a college or university. In 2011, the total student debt held by American households outstripped credit card debt for the first time, a burden of more than $1 trillion.4

Recessions put even more pressure on the higher education system by causing a shortfall in state revenues that tightens budgets and makes state investments more tenuous. These budgetary pressures can affect appropriations for years after the recession ends, and over the past generation the length of time that it has taken higher education funding to return to normalcy following a recession has increased.5 In 2010—three years after the onset of the Great Recession—state appropriations for higher education were still 5 percent lower than their levels before the recession began, even though enrollment had jumped more than 19 percent due to the combination of young people entering higher education and unemployed workers seeking to build new skills.6 This state disinvestment slows college completion, increases household debt, and undermines the social benefits of an educated citizenry that can be critical to a recovering state economy that depends on educated workers.

Yet some states have managed to retain their commitment to higher education despite three recessions over the past two decades and increasing pressures on state budgets from competing programs with growing costs. This report investigates the circumstances behind those budgetary decisions, matching performance in higher education appropriations to economic, political, and cultural factors that influence the level of state funding. We distinguish key trends across states that result in reductions to appropriations, providing a ranking of states by their funding performance after accounting for the most significant obstacles to budgeting for higher education. In addition, case studies of four states – Minnesota, Pennsylvania, Louisiana, and Colorado – look beyond the broad commonalities to understand decisions about state appropriations in context. The results of this study identify the most important considerations for policy makers in determining state appropriations and provide insights for advocates aiming to restore higher education as a top priority in state budgets.

Key Findings

We analyzed patterns in state appropriations for higher education across all 50 states for the 20 year period from 1988 to 2009, looking at a broad array of factors that influence budgetary decisions. This study evaluates the importance of those factors, grouping them into three categories of influence on the outcome of state funding for higher education: economic, political, and cultural.

Economic factors look at the constraints of the state budget due to limited resources, including changes in revenues, demographics, and competing state needs. Since higher education funding is discretionary, public colleges and universities often compete with other state priorities or are crowded out by the needs of programs that are mandated by state law.

Political factors are based on expressions of power from the government, citizenry, or interest groups acting in the state.

Cultural Factors are based in a state’s history of religious, social, and ethnic values and its views toward supporting education as expressed in precedents or symbolic actions. These considerations are bound in the state’s historical development of industry, civic participation, and the higher education system.

Based on the examination of the above economic, political, and cultural variables in our analysis, we found that:

1) Strong, Diverse Economies Yield Better Funding Opportunities

Our model shows that the overall strength of the economy is one of the most important factors related to funding decisions for higher education, specifically identifying a relationship between high unemployment rates and FTE state appropriations that appears as a 7 percentage point decline in funding for every 1 percentage point increase in unemployment. The result suggests that better funding opportunities are available to states with stronger economies. Such states are likely to have a more diversified representation of industrial sectors and a greater ability to sustain investment in higher education. Meanwhile, states without these attributes may struggle to maintain support for higher education.

2) Demographic Divides Influence Policy

Our analysis finds that for every 10 percentage point increase in the proportion of a state’s population that is 65 or older, there is an almost 7 percent reduction in FTE state appropriations for higher education. This finding may foreshadow long-term strains for higher education related to population trends and the resulting competition over state dollars. Colleges and universities located in states that are retiree destinations may be especially vulnerable as the needs of aging populations compete for scarce resources.

3) Culture Matters, But It Can Be Overshadowed By Economic Turbulence

Our research found a negative association between voting in presidential elections and state funding for higher education. Specifically, for every 10 percentage point increase in presidential voter participation over the past 20 years, there is a 1.5 percent decrease in FTE state appropriations. Since presidential voting data spans four-year periods, our results suggest that widespread economic struggles during these blocks of time may relate to voter participation in national elections and negatively impact state higher education budgets.

4) The History Of Support Sets The Standard For Current Support

Higher education budgets are largely incremental and reflect long standing values, patterns, and policy frameworks that set the standard for funding for state institutions since their inception. States that have historically funded their institutions at low rates are unlikely to catch up soon as they depend on the small, cumulative gains that are characteristic of budget decisions. Meanwhile, states that have historically supported higher education at a high rate may be more likely to maintain this established range of support for their institutions, unless they meet with significant countervailing budget pressures.

Case Studies

The findings from our initial analysis allow us to identify which states provided higher and lower than expected support for higher education for the years between 1998 and 2009, after controlling for unemployment rates, the proportion of residents over 65, and voting behaviors. From these results we selected four states for case study in order to look more deeply into the specific context of allocating state funding for higher education. The four states we studied – Minnesota, Pennsylvania, Louisiana, and Colorado – present distinct approaches to higher education funding based in each state’s unique history, geography, economy, culture, and politics. Although these approaches are deeply contextual, they do provide some common themes that cross state borders and offer general lessons for future funding decisions. These lessons include:

1) Linking Higher Education Appropriations To Economic Development Can Create A Virtuous Cycle

The inextricable link between a state’s economic performance and its higher education funding reveals a pathway for mutual reinforcement by tying appropriations to economic development. Historically, both Minnesota and Pennsylvania developed a robust system of public and private higher education in relationship to sustaining a diversified economy with demand for highly-skilled labor. Louisiana and Colorado, in contrast, illustrate that states rich in natural resources may have difficulty creating an appetite for higher education among elected officials and the public at large. Louisiana’s strong oil industry has slowed its transition to a knowledge-based economy since generations of Louisianans have been successful in making a living without a college degree. But while the social and economic challenges currently faced by Louisiana divert funds from educational investments and toward other priorities like health and incarceration, investing in educational attainment can also be viewed as spending toward the amelioration of persistent social problems that strain state budgets and economic performance. The Colorado case study revealed that recent economic development initiatives in the state have focused on tax breaks for the mining industry, rather than investing in human capital via higher education. A strategy that highlights the ability of education to open possibilities for the future economy, where citizens value access, and where education can mitigate the costs of other state programs like incarceration or poverty alleviation, is important for framing a discussion of state appropriations.

2) Governorships Matter

While partisan differences do not explain deviations in levels of higher education investment among the four states’ legislatures, gubernatorial leadership may set the tone for higher education finance policy in a state. In these four cases the value of access appears to be the most salient issue for Democratic governors while performance and efficiency are most prominent for Republican governors. In Minnesota, for example, governors have focused on maintaining funding levels that offset or diminish the effects of increased tuition. In 1983, Democratic Governor Rudy Perpich created the Design for Shared Responsibility which ushered in the high-tuition, high aid model that has persisted to the present. In 2010, Democratic Governor Mark Dayton’s revised budget reduced cuts to less than half of what was proposed by the Minnesota legislature. Republican governors in Louisiana and Pennsylvania, in contrast, rely on market-based strategies to address higher education costs and benefits. Louisiana Governor Bobby Jindal’s education policy focuses on giving institutions the ability to raise tuition and be more competitive, while Pennsylvania Governor Tom Corbett’s administration failed to pass a 50 percent cut to higher education funding and has since focused primarily on entrepreneurship strategies for institutional success.

3) High Tuition/High Aid Models Have Not Provided Consistent Support or Maintained Inclusive Access to Higher Education Over Time

Each of the four states studied here has made efforts to mitigate the effects of rising tuition costs or inferior access to higher education through offering need- or merit-based financial aid, with mixed results. Both Minnesota and Pennsylvania adopted a high tuition-high aid model, with the emphasis on need-based programs to bolster access. The Pennsylvania State Grant Program is considered by many funding experts to be one of the best in the country, yet maintaining adequate funding levels is difficult in the state where tuition is high and rising and graduates of Pennsylvania colleges and universities bear the second highest debt load in the country. Colorado’s voucher-based COF and Louisiana’s merit-based aid program, TOPS, both aim to improve access to higher education, but fail to reach those low-income students who need it most. In these states achievement gaps by income and race persist and are exacerbated by financial aid programs that do not meet the needs of the population.

Institutions of higher education in Pennsylvania and Colorado have unique relationships with the policymakers involved in determining state appropriations for the sector. In Pennsylvania, institutional autonomy in advocating for support has contributed to a larger overall level of appropriations as the direct interaction between politicians and school leads to better funding opportunities. The case of Colorado shows the converse of that relationship. In Colorado, which imports many of its college-educated workers, policymakers may lack a direct connection with local institutions leading them to prioritize other concerns – like tax relief – above higher education funding. These examples point toward a strategy of institutional representatives reaching out to politicians individually in order to facilitate familiarity, loyalty, and trust in the public higher education system among the policymakers who apportion state budgets.

5) Anti-Tax And Anti-Government Political Sentiment Does Not Sufficiently Account For The Shared Benefits Of Education As A Public Good

Proponents of low taxes and limited government suggest that reducing funding for vital public services like higher education will result in increased efficiencies. But market-based programs like Colorado’s COF have failed to meet their aims, leading to lower quality and declining access to post-secondary schooling. Anti-tax arguments that frame state funding for higher education as simply a cost fail to incorporate the widespread benefits of higher education to households, businesses, communities, and the state overall. This framing omits the positive returns that should be incorporated into any cost/benefit decision-making rubric. While higher education was once viewed as the key to individual prosperity, strong communities, and strong economies, this is no longer a widely held view. Given the tendency of anti-tax sentiment to disregard the important advantages of investment in higher education, institutions and advocates should emphasize the positive externalities of higher education and its ability to address community or state needs as a way to earn support among legislators, governors, and the general public.

Conclusion

Over the past two decades, declines in state appropriations for higher education have resulted in increased costs, high student debts, and more barriers to securing a stable American middle class. This study provides focus for stakeholders and advocates distinguishing the goals, priorities, and obstacles that result in inadequate funding for higher education. Our results show a range of economic, political, and cultural factors that can be leveraged for greater support. While there is no single strategy for procuring funding for higher education, drawing together the lessons from our research presents a way forward, toward putting higher education back at the top of state agendas.